USD Extends Losses While The Nasdaq Rally Continues

Okay, very good morning to you. It is Tuesday the 1st of September. I hope everyone in the UK had an excellent long weekend, but straight back into the fold and going to update you with a variety of news stories. Actually quite a bit for me to get you up to speed on, but before I do, let's have a big bit of a stock check on where exactly did we end in August? Because August was a phenomenal month by performance. So looking at a few different things here, um, essentially yesterday was a little bit mixed, but we did see some outperformance once again in the NASDAQ 100. Um, Apple surged after their stock split 4 to 1, lifted the NASDAQ 100 past 12,000 for the first time. And we'll have a look at Apple and its new weighting as far as it's comprised now in the Dow in a second, because it could be quite useful going forward to understand then the slight divergence that we had yesterday. The Dow and the S&P were lower, big outperformance in the Nasdaq, and it could well be amplified now in regard to the new mix and blend of companies within the Dow index. Otherwise though, looking at some of the stock performance, so here the S&P 500 now has posted its longest monthly winning streak since 2018. It was the best August performance in US equities for 34 years, so definitely The, the show goes on, as they say, for, for the time being. Um, the Dow did lag though a little bit yesterday, not only because of the outperformance in the likes of Apple, which was up I think in excess of 3% by the close. Tesla was also rallying sharply following its own stock split, but the Dow lagged, um, with Microsoft and Walmart slumping on concerns China could block the possible sale of the video app TikTok. And if you remember that was elevating individually their stock prices at the end of last week. Looking at the new Dow sorted by percentage weight within the index, it's always worth familiarizing yourself with this in order to understand the index overall movement. And so the actual— the biggest company now by percentage is UnitedHealth Group. They account now for just over 7% of the entire index, followed by top 3: Home Depot, And actually the new entrant, or both, or two actually, Salesgen and— Salesgen? Salesforce and Amgen, two of the new additions to the actual index. They are now taking the third and fourth spot. Microsoft is fifth. If you actually look at Apple now, they were previously around 12% or so of the Dow. They've now dropped all the way down to 17th slot, and they now account for just around 3%. I have had quite a few questions, particularly yesterday. I was away from the desk, but a number of people who understandably are new to markets, maybe not so familiar with the concept of stock splits, you know, so why do they do it in regards to helping boost a stock's liquidity profile in order to help other, other investors within the marketplace become stock or shareholders, given then it kind of devalues, if you like, the singular price. So it gives it more of an opportunity for new entrants to buy that stock, uh, particularly with companies like Apple and Tesla which have grown so excessively more expensive over time. And it's not the first time these sorts of things have happened. I think it was back in 2014 Apple did a stock split, uh, as well. But rather than me going into this in greater detail, what I'm going to do is I'm going to post a link, uh, in the description or comments of this video and just have a read of this. Anyone who is new to markets, and you would have heard me say this to you before if we have interacted, you know, Investopedia really should be your, your bible. And my, my general rule of thumb to anyone new to markets is always be constantly kind of curious. And if you ever see anything during the day that you're unsure of, then take it upon yourself to really investigate. And a really great place or tool for doing that is Investopedia because it's really short form, concise, it gives you nice example key takeaways, and then generally build up these knowledge blocks over time and you can accumulate a good level of knowledge quite quickly. So I'm not going to go into this in great detail, let you check that out in your own time. But following on the, the stock's performance, one thing to also be aware of, particularly talking about Apple, obviously still a major force for markets at the moment. Interesting, on Bloomberg they were saying that according to suppliers, Apple is preparing 75 million 5G iPhones alongside new watches and iPads. And this comes ahead, of course, their, their general timed unveiling of new products that we're going to be seeing in the coming weeks. But this is particularly interesting just given the context of the pandemic, of course, hasn't really dented their ambitions to continue roughly in line with, as the article says here, with last year's launch. So despite everything that's gone on, the company's still plowing on with the same kind of volume of numbers, which is particularly important for this, this stock to continue in the trends that it has been seeing. Another company as well, probably worth a shout, is Zoom. Obviously Zoom being a massive beneficiary of the pandemic situation and the whole working from home and their shares were up around 25% after market last night. They smashed even the most optimistic of estimates on the street. So those types of names continue to sharply outperform the market. But yeah, quick, quick look then. That's kind of the general overview of a lot of what was happening yesterday. But at the moment, you can see stock indices still positive footing. The Nasdaq future in the center here just above where it was in the high from yesterday evening's close on Wall Street. And you can see here just finding a little bit of resistance, the Asia-Pacific session high and around the respective R1. DAX up about 81. In the currency markets, the DXY is down firmly. DXY took a bit of a hit in the overnight session. We did have some comments out of Clarida, who is the vice chair of the Federal Reserve, yesterday. Now these comments did come out yesterday but I am mindful that quite a few of you are not around, particularly if you're based in the UK, to be looking at your screen. So just a quick update, what did Clarida say? And again, Clarida is the vice chair, so is a particularly important person, aligned then as close as you can be to Jerome Powell, and left open the possibility of the— a possibility of employing Treasury yield caps at some point in the future. Now did go on to indicate it's not likely now in terms of timing, and also reiterated the bank's rejection of negative rates, but kept yield curve control basically firmly on the table. And this of course comes after that move towards average inflation targeting we saw just last week. So likelihood that just further fuels that narrative. The Fed are here to remain the supportive hand of markets. And keeping that option on the table. I guess that for me is somewhat tactical. I'm not that surprised by it because after you take a dovish change in policy, is like what we saw last week, the, the market would probably want some type of reassurance that that's not just it, that there are still other options. Not that it's necessary right now, we're not seeing any degree of market disruption, but to know with assurance that the Fed is still there to prop things up. And I think that's what the Fed strategy in their communication was trying to do with Carida's comments. But nonetheless, the Dixie overnight has come under some pressure, and the Dixie is trading down about 3/4 of 1%, so it's down a decent amount. And that means that in the major pairs, um, we are close to the 120 handle now in the euro, and also in the British pound we're up at the 134 handle. Now one thing I just quickly wanted to show you was, okay, let's have a look at the, the dollar index. I know this is a bit tricky to see, let me see if I can move it up a little bit. So there you go. So looking at the axis at the bottom here, I mean, this is going back to the mid-'90s on the far left, but if we go back to the where we are right now, which is trading— we have traded under 92, and it seems like the break of 92, which was the level of which symbolically we bounced off in the Dixie yesterday. If I could put my cursor sort of kind of around this sort of level here on the, on the shorter-dated chart on the Dixie, we hit that level and we got rejected. We bounced quite high, but the breakthrough that overnight has exacerbated almost some of the weakness in the greenback. And if you look where we are at the moment, you can see we're right back at around that low that we had in May of 2016. Also as well, a point of interest in the summer of 2017, and that reference high that we had back in 2004 and 2005. So some quite key levels here technically. Obviously the dollar has taken an almighty hit in recent times, and that trend has continued despite that brief hiatus that we saw in the selling after that momentary, uh, kind of yield movement shock that, that created a little bit of that gold shakeout, um, that happened a few weeks ago. That's all seemingly a bit of a distant memory now. And if you're looking at gold, back to the charts for one moment, gold is now having a bit of a test and a move back to the upside. So it's kind of normal service resuming to some degree, and we're right back up where we found some resistance at the moment. The R2 on the daily pivots, but we're just shy of the $2,000 level. And of course, if we look at the $2,000 level over the course of the— this whole kind of story of gold over the elevated price movement that we had through late part of July, $2,000 obviously has been an area here of, of significance where we were rejected a number of times before we had the breakout that came at the beginning of August. So we're right back up there. Again, as far as gold is concerned. Again, chiefly buoyed by the weakening and persistent weakness in the dollar. The other thing is though, talking about the dollar, is obviously these currency pairs. And just taking a shift over to the currency market, this is that, um, EURUSD chart we've been looking at for quite a while. And obviously now we've firmly broken through that long-term trend line we've had our eyes on for quite some time. And that has opened the door to around the 1.2050, looking on the weekly candlesticks here. But you can see then, somewhat inevitable, this kind of grind back up higher for the euro. And also helping a little bit with the euro is this divergence in fundamentals. Not only have we got a persistent weakening dollar, but, you know, in Germany, headlines like this further support the kind of narrative for that move. This is talking about Germany, the government today is going to unveil an update to their, their latest growth forecasts. They issued these back in April, and they expect that the economic fallout from coronavirus will be smaller than expected this year, according to people familiar with the matter. Ahead of the official unveiling of these latest forecasts, we'll get, I think it's around 10 AM London time. The idea here being then that previously they predicted back in April— so if you remember, April was right in the depths of of the actual full nationwide lockdowns experienced globally at that time. So it's probably the maximum point of pessimism you probably could have had at that particular time. So I don't find it that surprising that perhaps now with a bit more clearer visibility and that the fiscal monetary responses are now well known and the market has recovered, that things are probably going to become still deep contractions for the end of this year, but perhaps not as bad as we previously forecasted. As a reference point, back in April they predicted the German economy would contract by around 6.3%, and we're looking out for a revision to perhaps just a contraction of 6%, for example. But I'm not saying that's the, the silver bullet for the euro, but it definitely helps that idea that helped push euro. And you can see here, just looking on the slightly shorter-dated chart, we've broken above the levels that we were trading in around the middle of the month. I quickly just transition my screen back. So here on the left-hand side, that was the high printed on the 18th, and we got rejected close to that price point in yesterday afternoon session. And that's probably going to act as a, as an area now of support for the time being, which is also coinciding with around the R1 on the daily pivots. Obviously, as the dollar weakens, Cable continues to benefit. Cable now just looking at this chart here, um, reclaiming the 1.34 handle, which puts us right away back up to where we were in December 2019. We're at the best levels clearly year to date that we've had, and it does come irrespective of the— these types of comments. So the EU chief Brexit negotiator Michel Barnier has said in The Telegraph that he's unwilling to open discussions of Britain's latest fisheries proposal until the UK budges budge on other issues. So we continue to remain at a distinct impasse here in these Brexit talks. And as I've said before through those timelines that I shared last week, I really don't see yet any type of visible breakthrough or compromise happening right now, even though, you know, the clock is ticking and time is, is diminishing in regards to get some sort of soft tentative deal by the 2nd of October in in order for it to be ratified by the end of the year, the end of transition period. So yes, this sounds, um, pretty frightening concept for the kind of success of those negotiations, but I wouldn't expect anything else given the amount of time that they still have to debate such issues. So I wouldn't read too much into that at the moment. As I've said before, I continue to say at this point, I think cable is driven by other forces, i.e., the dollar for the time being is more of a potent force. Um, talking of FX, probably prudent then to also get the Aussie involved because we did have the RBA overnight. So just jumping around some different headlines here. So firstly, what did they do with the interest rate decision? Well, I didn't really see any reaction because everything was as expected. So they left interest rates in their 3-year kind of yield target unchanged. So no shocks there. But we did have overnight in Australia. The, the generally the currency supported by a couple of different things, uh, better than expected building approvals and current account data coming out of Australia. But also we did have in China, uh, this. So in China overnight we had some information where China's factory activity expanded at the fastest clip since, or in nearly a decade basically. in the month of August. 53.1 was the number, above expectations of 52.6. It was bolstered by the first increase in new export orders, uh, this year. So overnight, the currency markets, again, uh, due to this figure but also the dollar weakness, the Chinese yuan actually traded at its highest level since, uh, 2019. But also, as given the importance of the Chinese economic story for then supportive of general trade and the demand of goods from Australia from an import basis, that's also a good story for the Aussie. And so the Aussie just tracking a little higher in the overnight session. And I was looking at the Aussie yesterday because I put out a briefing on Sunday night, and I was talking about now that we had broken this long-term trend line dating back to 2014, um, that I'd be keeping an eye on the 74 handle as the first point of target, which was that high that we had back in the end of December of 2018, and here we are right at that level. So it was quite interesting yesterday actually, we basically hit that 74, and then you can see we got rejected, and people would have been just booking profit on that trade on the basis of that long-term trend line. So yeah, quite a nice trade. I know the people who were in the market, some of you got hold of a little bit of that, um, riding the price move up during yesterday's session, and then just looking to bail on that position as per I think a lot of people looking at the same thing, and it faded during the latter hours of yesterday's session, only to be bid again for those reasons just mentioned— Chinese solid data, persistent dollar weakness, and some decent Aussie numbers as well, just helping push things back up again in the overnight session. But sticking within that FX region, let's get the yen involved, because last time I probably spoke to you guys, we were talking about the somewhat surprise resignation of, um, the Prime Minister Shinzo Abe. So what's the latest here? Well, the latest articles are suggesting that top government spokesman Yoshihide Suga is emerging as a front-runner to become next Premier, heightening the chance then— what that candidate symbolizes— the chance that the government will continue down the policy course set by Abe which importantly is Abenomics, which is those three arrows of unprecedented amounts of fiscal and monetary stimulus at the core of it. And so we saw this big sell-off, obviously, which was concerns at the end of last week about what his resignation might mean for the fate of that particular strategy for the country. And that was causing a strengthening play for the currency in Japanese yen. However, continuity of some case kind of Abenomics 2.0, if you like, would help, you would think, stabilize this price. Not necessarily reverse course completely, but at least eradicate the kind of pressure then for any continuation of just basically any further kind of downside at this point. Excuse me, let's just remove this in regard to moves towards this sort of direction. If I was to look at the currency chart here. So yeah, this was the move that we had at the end of last week. Basically, it's just about X-ing out this potential now, which is the risk that we could have seen a longer-term play where, you know, that key area of 1.04, looking here on a much longer weekly candlestick chart, where that 1.04 would be a key downside level on the idea of the eradication or let's say severe watering down of Abenomics would have meant for dollar-yen as a pair. But if this candidate continues to break away as the front runner in the form of the, the top government spokesman Suga, then what you would expect then is perhaps some stabilization of the currency pair rather than a push down, as this arrow would indicate, would be my interpretation to take from that at the moment. But we continue to monitor. Still fairly early, and there's a lot of candidates still jostling for political positioning at the moment, I would say. So, so perhaps one to continue to watch. Um, okay, yeah, jumping back, a few other final articles just to, to mention. One of the things was this quite interesting note came out on Monday from analysts at JP Morgan talking about the US election, uh, and They said investors should position for the rising odds of Donald Trump winning reelection. Betting odds are now even, generally speaking, irrespective of the fact that Biden still leads in the polls. And what JP Morgan are saying, that the reasoning, the rationale here, quite simply, is largely due to the impact of public opinion of violence around protests as well as potential bias in polls. Do you remember we've had a number of protests? I think there was one latest one in Portland following a shooting where pro-Trump and Black Lives Matter movement protesters clashed in large scale in Portland, in, in Washington, in the US on the weekend. So this continues to be a recurring theme. And a couple things here from JP Morgan, what they're saying to further this. They said, but based on past research There could be a shift of 5 to 10 points in polls from Democrats to Republicans if the perception of protests turns from peaceful to violent. Also, the outcome of any debates and the Democrats' stance on protests will be key. The latter risks turning off voters generally if seen as too permissive, but also could alienate progressives if it's seen— if it's not seen seen as sympathetic enough. So basically, a key point here is that COVID in the US, generally speaking, although, uh, obviously we've got this period of seasonality to come, uh, if that coincides then with schools reopening, does that act as a potential catalyst then for another wave in the US? You know, who knows at this point. But if COVID continues to remain on general controlled point, uh, well, for this time at least. If that situation improves with COVID if the narrative changes more to these protests, uh, it's going to be particularly difficult for Biden to manage to appease both sides of the political spectrum that he's trying to capture for the vote. And for Trump, then, it takes away one of the biggest negatives, which has been his handling of COVID and puts things square and center on this, this tried and tested US political formula that has shown success through presidential campaigns in history, which is law and order. And the more violent these protests become, I would say the more positively this plays in favor of Donald Trump's likelihood of him improving in the polls. Following on from the conventions, some of these other clashes that we've had with the slight improvements with COVID actually the polls have been narrowing and And actually Biden's lead, which if you remember was as much as +10 only a few weeks ago, is now just +6.2. And you can see here this red line is Trump, whereas Biden's remained relatively static. Trump really has started to make some, some decent headway since really the Republican convention, since that began post-period and with more violence that's been seen. Actually the more it moves higher. There's some interesting graphics actually from the FT this morning. I haven't got them to hand, and it shows you where people who are indifferent, so neither Republican or Democratic minded, and how they feel about things like the Black Lives Matter movement. And actually the, the kind of momentum behind that for someone who's not engaged in that traditionally as a subject matter has started to dissipate. Fairly sharply actually. So that in itself also plays into the hands of Donald Trump. So yeah, I, as I've always been, and you know, don't take this as my political biases, but I still, just based on the facts, I still firmly believe that Donald Trump will win a second term at this point, is my take. Final story I thought was just worth a mention, just to not confuse you in case you see this headline, you think it's a negative because I'll tell you now it's not, and I'll explain why. And that's because there's, uh, Sanofi and Regeneron Pharmaceuticals have come out overnight and they are suspending tests on using their rheumatoid arthritis medicine as a potential weapon against COVID-19 after weak results in the final trial of clinical trials. Now, although this sounds quite bad on the headline, it's kind of like, wow, these are big pharmaceutical companies, perhaps this was the, the magical formula that was going to be adopted for the rolling out of a solution for COVID-19. The fact of the matter is that the CEO of, I think it was Sanofi, had already stated that this actual trial was seen as a particular long shot, and so the actual credibility behind it, and therefore net the expectation of it being successful, was already very low. So the fact that they've come out and actually the final clinical trials have proven that point is not a surprise at all. So I would not take this as a negative headline, uh, in that extent. Um, and that, that's pretty much it from the news side of things. So yeah, plenty to digest. I hope it all kind of made sense. Actually, before I just quickly jump to the calendar, I just want to quickly mention crude oil, um, because I didn't mention that on Sunday. But one of the main things here, I've been looking for updates. I'm sure more will come today, But generally speaking, the things I was reading at the weekend were suggesting that overall the impact then from Hurricane Laura was to a much lesser degree than perhaps people were fearing initially. So we'd be looking for re-acceleration, the reopening of those various facilities within the Gulf to come back online pretty quickly. And so we have seen some, some fairly volatile price movement in oil. I mean, yesterday's session, I can see we did drop decent amount before finding a bit of support. We're trading a $0.43 handle, back up $0.50 for the moment. On a, on a daily continuation though, it's a fairly interesting price action. I've been keeping an eye really over the last few weeks on the 21 DMA. Generally has pretty been a pretty good line of support for price, generally speaking. And also then with the low that we had back on the 27th of August coinciding around a similar point that would be 4236. So on a slightly higher time frame, I'd be looking at these areas as a pretty decent area of support for price. But things would suggest now, you know, you've had the Chinese data overnight, um, that was, that was strong in terms of their manufacturing activity. Um, in fact, that grew at the fastest pace in, in about a decade. You've also got COVID. Yes, there are areas like India I understand, which are still particularly bad, but overall in places like the US, still relatively controlled. Equity sentiment still continue to push higher. And so overall, I would say I still favor that oil should continue to track higher. Technically speaking, I think we do need to really break through this $43.32, that 2nd of March high. We, we flirted with it a couple times, never really confirm the break. But I think once we do— I do think it's a matter of time when we do— then we'll see a decent push up to 0.45 in fairly quick succession. Not saying it's going to happen today, but I think that's definitely the price movement that I'd expect over the coming days. Okay, calendar-wise for today, what have we got? Moving on to the European morning, these are generally final manufacturing PMI numbers that we'll get, so we're not expecting too much market reaction to it. You do get though the German unemployment change and rate coming out just before 9 AM London time, so keep an eye out for that. Going into then the UK manufacturing PMI, again final reading for August, that's coming out at 9:30 alongside mortgage approvals and lending. You do get the eurozone flash CPI reading for August coming out at 10 o'clock. So yeah, a couple things European-related to, to keep an eye on— that German job data and the flash CPI numbers coming out of the eurozone at 10 AM. That comes, come out alongside the eurozone unemployment rate this afternoon. Again, final manufacturing activity number for the US, and then you get ISM manufacturing, much more important for the session. That'll be at 3 o'clock. Those numbers still expected to hold up. You might have caught me on Sunday talking about how Credit Suisse analysts were talking about potential deterioration further into the fall. But for the moment, I'd anticipate that these numbers should be fairly robust still. Still, again, you've got the manufacturing Tuesday, non-manufacturing is coming Thursday as far as the ISM US figures are concerned. Beige Book, wouldn't be expecting too much of a great deal out of that. And then you've got the API inventories, of course, coming later on this evening. From a speaker's perspective, ECB, de Guindos and Lane speaking morning and afternoon, and then Fed's Brainard, who is speaking actually on topic in regards to the recent change in Fed policy. And she is a governor, and she's going to be speaking at 6 PM London, so that'll be 1 o'clock in the afternoon if you're based in New York. All right, I think that's a long enough briefing. Sorry for the, for the length, but quite a few to get back up to speed. And welcome back if you if you're in the UK, back into the fold. Any questions at all, just feel free to drop me a comment. And yeah, any information about stock splits and what does that mean, I'll drop that link for you to have a read as well in the video. But have a great day ahead. Thanks very much.